One of Canada’s largest banks made an unusual move — they called out the role the Bank of Canada (BoC) played in the property bubble. Well, they subbed them. BMO senior economist Robert Kavcic sent clients a housing analysis this morning. He attributes the transition from a hot market to one that’s going to burn down the economy, to a promise of low for long interest rates. The promise has been made directly by the BoC, in multiple attempts to calm households. Instead, it accidentally caused a surge of FOMO-driven panic buying.
BMO Blames The Bank of Canada For Adding Gas To The Fire
BMO said what everyone is thinking — the BoC just sent homebuyers on a FOMO-driven spree. Kavcic attributes the current acceleration of home buying to the BoC. He wrote, “a surge in demand started by the pandemic, but now set ablaze by the promise of low-for-very-long interest rates.”
By setting this expectation, the central bank has panicked a busy market into a reckless one. Buyers are now buying as much house as possible, as quickly as possible. The organization’s statement sparked a “fear of missing out on widely expected price gains,” says Kavcic. Adding, “and probably the increased speculation that those expectations bring.” If the BoC is saying they’ll give people cheap debt for a long time, it’s hard to argue against speculation.
Home Sale Inventory Shows Higher Than Typical Growth
The Big Six bank does think supply issues are very real, and there’s definitely a shortage. That trend just isn’t what’s behind the sudden acceleration in 2021. He said, “we’re highly sympathetic to longer-term supply-side constraints in the housing market, and have been highlighting them for almost a decade. But that is not what’s at play today.”
Canada is seeing a large amount of inventory coming to market, compared to normal. “Despite the belief that there is a dearth of inventory, new listings have been coming to market about 10-15% faster than normal,” he points out. “This is historically a solid flow of inventory.”
BOC-Created FOMO Driving Excess Demand
The economist found demand is the primary issue, due to the unnatural FOMO created by the BoC. He points to home sales in Vancouver and Calgary. The regions are ~60% higher than pre-pandemic levels, showing accelerated growth in March. Last year during March, home sales were at typical volumes. April is when home sales suffered a temporary drop, which will create a year-over-year boost. At least statistically.
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